November was another strong month for sharemarkets which set aside geopolitical events (the ongoing war in Ukraine and the escalation of conflict in the Middle East) in favour of a settled election outcome in the US and the prospect that inflation is easing.
The US sharemarket has focused on Trump’s business friendly policies of lower taxes and deregulation. The market has also been supported by solid corporate earnings results, a reduction in short-term interest rates by the US Federal Reserve, and better than expected economic data.
A further reduction in short-term interest rates and continued US economic growth will be positive for global sharemarkets.
Locally, lower short-term interest rates and the likelihood that domestic corporate earnings are at cyclical lows provide the opportunity for the NZ sharemarket to perform solidly in the year ahead. The global economic and market backdrop will also be supportive of the local market.
The anticipated decline in shorter term domestic interest rates in the months ahead is negative for people looking at term deposits to provide them with income.
The relative attractiveness of domestic bonds has declined given the dramatic fall in longer-term interest rates.
Global bonds continue to offer stability of income and the potential for capital gains from further reductions in interest rates as inflation continues to decline and central banks progress interest rate cuts.